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02

Public Finance

CHAPTER

Financial year 2015-16 ushered in a new era of ‘co-operative federalism with shared
responsibilities’ and more coordinated efforts between the centre and states for
achieving development goals, following the recommendations of the 14th Finance
Commission. The General Budget 2015-16 was presented in a more stable economic
environment as compared to the just preceding years, with the economy showing
signs of revival of growth. Against this background, the fiscal policy for 2015-16 was
calibrated with three main objectives: first, to amplify the growth revival with greater
emphasis on public investment at a time when private investment was understandably
lean; second, to institutionalize the changing structure of cooperative federalism;
and third, to continue the commitment to fiscal consolidation.
2.2 Budget 2015-16 sought to achieve the
delicate equilibrium between the concerns of
stirring growth, accommodating the resource
transfer that greater fiscal federalism entailed
and ensuring fiscal consolidation. This was
intended to be achieved through higher
capital expenditure, greater net resource
transfers to states, higher gross tax revenues
and expenditure rationalisation. The Budget
also signalled government’s intent on fiscal
Fiscal Indicator

Revenue receipts
Gross tax revenue
Net tax to centre
Total expenditure
Revenue expenditure
Capital expenditure
Revenue deficit
Fiscal deficit
Primary deficit

consolidation with respect to all major deficit
indicators (Table 2.1), albeit with a revised
medium-term framework that opted for
shifting the fiscal deficit target of 3 per cent of
the GDP by one year, from 2016-17 to 201718. Accordingly, the envisaged fiscal deficit
to GDP targets were 3.9 per cent in 2015-16,
3.5 per cent in 2016-17 and 3.0 per cent in
2017-18.

Table 2.1 Major Fiscal Indicators of the Centre

2012-13 2013-14

2014-15
P
R lakh crore

8.8
10.4
7.4
14.1
12.4
1.7
3.6
4.9
1.8

10.1
11.4
8.2
15.6
13.7
1.9
3.6
5.0
1.3

11.0
12.5
9.0
16.4
14.6
1.9
3.6
5.0
1.0

2015-16
BE
11.4
14.5
9.2
17.8
15.4
2.4
3.9
5.6
1.0

2012-13 2013-14

2014-15
P
Per cent of GDP

8.8
10.4
7.5
14.2
12.5
1.7
3.7
4.9
1.8

9.0
10.1
7.2
13.8
12.2
1.7
3.2
4.5
1.1

8.8
10.0
7.2
13.2
11.7
1.5
2.9
4.0
0.8

Source: Budget documents, Controller General of Account (CGA) and Central Statistical Office (CSO).

Note: BE is budget estimates

P : Provisional

2015-16
BE
8.1
10.3
6.5
12.6
10.9
1.7
2.8
3.9
0.7

08 2.9 percentage points of GDP.58 1.2: Sources of GTR (R lakh crore) 2011-12 2012-13 2013-14 2014-15 2015-16 P BE GTR CT IT CD UED ST 8.23 1.49 1.33 11.65 1.69 1.3 per cent of GDP (Figure 2.3 Central government receipts can broadly be divided into non-debt and debt receipts. significant fiscal consolidation could be achieved largely due to buoyant tax revenues with net tax revenue to the centre increasing by 1.45 4.39 3.88 1.32 Economic Survey 2015-16 Trends in Receipts 2.8 per cent in gross tax revenue (GTR) over the revised estimates (RE) of 2014-15.38 1.89 1. Fiscal consolidation was paused post the financial crisis that led to tax concessions and higher public expenditure.97 1.49 4.72 1.5 per cent growth in indirect taxes (IDT).95 2.5 Budget 2015-16 envisaged a growth of 15. The composition of non-debt receipts is plotted in Figure 2.21 2.76 1.10 Notes: GTR=gross tax revenue CT= corporation tax IT= income tax UED= union excise duty CD=custom duty ST= service tax Source: Budget documents and CGA.29 2. which the government is obliged to repay in the future.55 12. In the post-FRBMA (Fiscal Responsibility and Budget Management Act 2003) period from 2004-5 to 2007-8. The growth in GTR was estimated to be led by a 19. recovery of loans and disinvestment receipts.29 2.89 3. non-tax revenue.36 3.4 Fiscal consolidation entails revenue augmentation and expenditure rationalization. Table 2.2). as part of the growth revival strategy and this .56 1. probably continued somewhat longer than required. The non-debt receipts comprise tax revenue.71 3. The decline in share of net tax revenue to the centre in non-debt receipts 2015-16 is mainly on account of the implementation of the 14th Finance Commission (FFC) recommendations that advocated higher tax devolution to the states for fostering fiscal federalism. GTR was estimated to be R14.45 0. 2. Roughly 54 per cent of the GTR was estimated to accrue from direct taxes and the remaining 46 per cent from indirect taxes (Figure 2. whereas debt receipts mostly consist of market borrowings and other liabilities.2). which was 10.64 1.49 lakh crore for 2015-16 (Table 2.1. as against a 13.68 14. Source: Budget documents & CGA Tax Revenue 2.3).98 10.1 per cent growth envisaged in direct taxes (DT).

CVD and SAD.5 per cent to 2 per cent. water blocking tape and Mica glass tape for use in the manufacture of insulated wires and cables. for use in the manufacture of Refrigerator compressors. components and accessories were fully exempted from BCD.Public Finance 33 three years (Figure 2. which are further used in manufacture of catalytic converters. antimony waste and scrap from 5 per cent to 2. active energy controller for use in the manufacture of Renewable Power System Inverters to 5 per cent.5 per cent to 5 per cent.Block for compressor. partly on account of measures taken by the government to enhance revenue by raising excise duty on petroleum products. parts. ethylene-propylene-non-conjugated-Diene Rubber (EPDM). black light unit module for use in the manufacture of LCD/LED TV panels from 10 per cent to Nil. subject to certification by MNRE. components and accessories for use in the manufacture of tablet computers and their sub-parts for use in manufacture of parts. anthraquinone for manufacture of hydrogen peroxide. especially for indirect taxes. 2. HDPE for use in the manufacture of telecommunication grade optical fibre cables from 7. magnetron upto 1 KW for use in the manufacture of microwave ovens. vinyl chloride monomer and styrene monomer from 2. isoprene and liquefied butanes from 5 per cent to 2. antimony metal.5 per cent to Nil per cent. CVD and SAD are being fully exempted on specified raw materials for use in the manufacture of pacemakers. ulexite ore from 2.5 per cent to 2.5 per cent to Nil.5 per cent. Reduction in Basic Customs Duty to reduce the cost of raw materials: ethylene dichloride. Sulphuric acid for use in the manufacture of fertilizers. zeolite. Customs Reduction in duty on certain inputs to address the problem of' duty inversion: Metal parts for use in the manufacture of electrical insulators. .5 per cent. ceria zirconia compounds and cerium compounds for use in the manufacture of washcoats.1 and 2. butyl acrylate from 7. organic LED TV panels from 10 per cent to Nil.5 per cent.2 enumerate the other major measures initiated on both indirect and direct taxes in 2015-16. The performance of indirect taxes in the first nine months of 201516 indicates that the budget estimates are likely to be achieved and possibly exceeded.1: Indirect Tax Measures in 2015-16 A. over load protector & positive thermal coefficient and Crank Shaft for compressor. C. evacuated tubes with three layers of solar selective coating for use in the manufacture of solar water heater and system to Nil. Box 2.6 The rates of growth of tax revenues envisaged in the budget estimates (BE) of 2015-16 over RE 2014-15 might have initially looked optimistic. Boxes 2.4). partly because the targeted growth in tax revenue was much higher than the average growth registered in the preceding Source: Budget documents & CGA.5 per cent. certain specified inputs for use in the manufacture of flexible medical video endoscopes from 5 per cent to 2. specified components for use in the manufacture of specified CNC lathe machines and machining centers from 7.

5 per cent to 5 per cent. Improving the quality of life and public health through Swachh Bharat initiatives: Increase in the clean energy cess levied on coal. • Basic customs duty was increased on crude edible oils (of vegetable origin) from 7. Contd. solar water heater and system from 12 per cent to Nil without CENVAT credit or 12.2016.20 16. vinyl chloride monomer and styrene monomer for manufacture of excisable goods from 4 per cent to 2 per cent. fixtures and LED lamps from 12 per cent to 6 per cent.5 per cent. • Basic customs duty was increased on sugar from 15 per cent to 25 per cent which was later increased to 40 per cent. • Anti-dumping duty and safeguard duty was imposed on specified goods.03 . • Excise duty was exempted on ethanol produced from molasses generated from cane crushed in the sugar season 2015-16 i. metal scrap of iron & steel.03. subject to certification by MNRE.5 per cent and refined edible oils (of vegetable origin) from 15 per cent to 20 per cent. Increase in Basic Customs Duty: metallurgical coke from 2. • Basic customs duty of 10 was imposed on wheat which was later increased to 25 per cent for a period up to 31. butter and butter oil from 30 per cent to 40 per cent for a period up to and inclusive of the 31 st day of March. • Basic customs duty and excise duty was exempted on specified bunker fuels for use in Indian Flag vessels for carrying export-import containers. Reduction in number of levies: Education cess and secondary & higher education cess on excisable goods were subsumed in Basic Excise duty. specified raw materials for use in the manufacture of pacemakers to Nil.03. 100 per tonne to Rs. including cellular phones from 1 per cent without CENVAT credit or 6 per cent with CENVAT credit to 1 per cent without CENV AT credit or 12. B. brass and aiuminiurn from 4 per cent to 2 per cent. fixtures and LED lamps from 4 per cent to Nil. ethylene dichloride. inputs for use in the manufacture of LED drivers and MCPCB for LED lights. 2015 onwards. tariff rate on commercial vehicles from 10 per cent to 40 per cent and effective rate from 10 per cent to 20 per cent.2016 of the concessional customs and excise duty rates on specified parts of electrically operated vehicles and hybrid vehicles. C. copper. • Basic customs duty was increased on ghee. Excise Excise duty structure on certain goods was restructured as follows: mobiles handsets. 2016.5 per cent with CENVAT credit. extension upto 31.5 with CENVAT credit.. naphtha. • Excise duty was exempted on RBD Palm Stearin. round copper wire and tin alloys for use in the manufacture of Solar PV ribbon for manufacture of solar PV cells to Nil subject to certification by Department of Electronics and Information Technology.. wafers for use in the manufacture of integrated circuit (1 C) modules for smart cards from 12 per cent to 6 per cent.5 per cent with CENVAT credit. Measures post-Budget 2015-16 (Excise and Customs) • Basic customs duty on specified steel goods was increased to 10 / 12. tablet computers from 12 per cent to 2 per cent without CENVAT credit or 12. falling under any chapter of the Customs Tariff. • CVD and SAD exemptions available to specified defence supplies were withdrawn. for use in manufacture of IT A bound goods from 4 per cent to Nil. Also. Exemption from excise duty available to defence PSUs and ordnance factories was withdrawn. empty containers and domestic containerized cargo. for supply to the specified public sector oil marketing companies. lignite and peat from Rs. input tax credit was allowed to manufacturers of such exempted ethanol.200 per tonne. for the purposes of blending with petrol. However.5 per cent to 12. inputs for use in the manufacture of LED drivers and MCPCB for LED lights. Methanol and Sodium Methoxide for use in the manufacture of specified biodiesel for a period upto 3l. customs duty on commercial vehicles in completely knocked down kits and electrically operated vehicles including those in CKD condition will continue to be at 10 per cent.. 1st October. increase in excise duty on sacks and bags of polymers of ethylene other than for industrial use from 12 per cent to 15 per cent. duty on Pig iron SO grade and Ferro-silicon-magnesium for use in the manufacture of cast components of wind operated electricity generators reduced to Nil.34 Economic Survey 2015-16 Reduction in SAD to address the problem of CENVAT credit accumulation: all goods [except populated PCBs]. .e.

or vessels or road would be limited to food grains including rice and pulses.Public Finance 35 D. a local authority. • Exemptions are being withdrawn on services provided by a mutual fund agent to a mutual fund or assets management company.00. • Certain pre-cold storage services relating to fruits and vegetables were exempted.. • In the case of good transport service. national park. • If the export proceeds are not received within the prescribed time period. E. award functions and sporting events other than the recognized sporting event. on the service provided by an Indian bank or other entity acting as an agent to the MTSO in relation to remittance of foreign currency from outside India to India. and on services by way of collection of contribution under Atal Pension Yojana were exempted. renovation or alteration service provided to the Government. if the amount charged is more than Rs. • Exemption to construction. if such export proceeds are received within one year from the specified period. • Exemption to transportation of food stuff by rail. the exporter would have to reverse the Cenvat Credit. • Charitable activities on advancement of yoga provided by an entity registered under Section 12 AA of the Income Tax Act were exempted. flour. wild life sanctuary and a tiger reserve was exempted. • Penalty provisions in service tax were rationalized to encourage compliance and early dispute resolution. • Registration in service tax to be granted within two working days. a single composite service need not be broken into its components and considered as constituting separate services. or dance. • Specified services under Power System Development Fund Scheme were exempted.. Transportation of agricultural produce is separately exempt. • Time limit for taking CENVAT credit of duty/tax paid on inputs and input services was extended from six months to one year. • Service tax would be levied on services by way of admission to entertainment event of concerts. would be limited only to such cases where amount charged is upto Rs 1. • For availing CENVAT credit of service tax paid under reverse charge mechanism.2015. in from the 1st day of July. • The negative list entry that covers “admission to entertainment event or access to amusement facility” was omitted. milk and salt. pageants. • Restrictions were placed on exemption on specified services of construction. 2014. Contd. • Services by common affluent treatment plants were exempted. selling or marketing agent of lottery ticket to a distributor. Service tax • Education cess and secondary & higher education cess on taxable services were subsumed in Service tax with effect from 01. • Service provided by way of admission to museum. Pradhan Mantri Jeevan Jyoti Bima Yojana. erection. if it is provided as such in the ordinary course of business. • The service tax payable under section 66B of the Finance Act. 500 for right to admission to such an event. • Service tax assesses were allowed to issue digitally signed invoices and maintain other records electronically. Re-credit of such reversed Cenvat credit was allowed. repair. road and vessel. • The entry in the negative list was pruned to exclude services related to carrying out production or manufacture of alcoholic liquor for human consumption. maintenance. 1994. or theatre. Service Tax: post-Budget 2015-16 • Service tax on Pradhan Mantri Suraksha Bima Yojna.06.000 for a performance. shall not be required to be paid. • Uniform abatement of 70 per cent from gross value prescribed for transport by rail. commissioning or installation of original works pertaining to an airport or port is being withdrawn. 2012 and ending with the 13th day of October. or a governmental authority. • Instructions were issued providing for withdrawal of prosecution where a notice was exonerated in quasijudicial proceedings and such order has attained finality. the condition of having made the payment of consideration to the service provider was done away with. zoo. • Exemption to services provided by a performing artist in folk or classical art form of music. musical performances concerts. distributor to a mutual fund or AMC. but for the said practice. Pradhan Mantri Jan Dhan Yogana. ..

An additional investment allowance to new manufacturing units set-up during the period 01. The limit of deduction u/s 80DD and 80U of the Act was increased from R 50.2015 to 31. orthopedically handicapped and. The residency requirement regarding companies incorporated outside India was modified. the permanent establishment norms were modified. Mechanisms to prevent tax disputes and to provide speedy disposal was strengthened. Exemption limit of transportation allowance was increased from R 800 per month to R 1600 per month to any employee and from R 1600 to R 3200 in case of an employee who is blind.5 per cent on all services.36 • • • • Economic Survey 2015-16 Specified services provided by Business Facilitators/Business Correspondents with respect to a Basic Saving Bank Deposit were exempted. Swachh Bharat Cess was imposed at the rate of 0.to R 25. Pass through status was provided to Category-I and Category-II Alternative Investment Funds governed by the regulations of Securities and Exchange Board of India.000 was provided for contribution to the New Pension Scheme under Section 80CCD over and above the limit of R 1. which are presently liable to service tax with effect from 15th November 2015 and not otherwise exempt or in the negative list. 1961 (the Act).to R 75. 2004. The scope of TDS on interest on bank deposits was expanded by bringing the interest on recurring deposits within the ambit of TDS.25 lakh in case of severe disability. Deduction u/s 80JJAA of the Act was extended to all assesses. Tax neutrality on transfer of units on merger of similar schemes of a Mutual Fund was provided.000/. Yoga was included as a specific category of activity in the definition of ‘charitable purpose’. Norms for Mandatory Quoting of PAN were also rationalized and broadened. Distinct nature of manpower supply services/ service of job work were clarified. Box 2.2015 to 30. hitherto available only to companies along with the reduction in eligibility threshold of minimum hundred workmen to fifty. The facility for filing self-declaration for certain Insurance payments was provided.2017.000/.to R 30. Bihar.06. Detailed guidelines were issued for speedy disbursal of pending refund claims of exporters of services under rule 5 of the CENVAT Credit Rules. 80.in case of disability and from R 1 lakh to R 1. The indirect transfer provisions were modified to provide clarity regarding its applicability. The limit of deduction u/s 80D of the Act was increased from R 15.5.5 lakh.000/.000/.2: Direct Tax Measures in 2015-16 • • • • • • • • • • • • • • • • • • • • • • • The levy of wealth tax was abolished and replaced it with an additional surcharge of 2 on the super-rich with a taxable income of over Rs 1 crore. .000/.on health insurance premium (in case of senior citizen from R 20.to Rs.2020 in notified backward areas of the states of Andhra Pradesh. To facilitate relocation of fund managers of offshore funds in India. Telangana and West Bengal was provided.000/. The rate of tax on royalty and fees for technical services was reduced from 25 per cent to 10 per cent. Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 was enacted and Rules thereunder have been notified. deaf and dumb. The scope of reporting of foreign remittances was expanded. An additional deduction of R 50.000/-). Scope of advance rulings and settlement of cases was further broadened. The limit of deduction in their case u/s 80DDB of the Act was increased from Rs 60.in respect of expenditure on account of specified diseases.04.03. For collection of Information in non-intrusive manner third party reporting mechanism was broadened and strengthened.000/. Investment in Sukanya Samriddhi Scheme was made eligible for deduction u/s 80C of the Income Tax Act. The period of applicability of reduced rate of tax at 5 per cent on income of foreign investors (FII and QFI) from corporate bonds and government securities was extended from 31.

have come up. in the absence of such incentives.5). Tax expenditure is also termed as ‘revenue forgone’. but it does not necessarily imply that this quantum of revenue has been waived by the government. high tax expenditure can make the tax system unduly complex.Public Finance Tax Expenditure 2. Arguably.7 The divergence between the statutory tax rate and effective tax rate (defined as the ratio of total tax revenue collected to the aggregate tax base) is mainly on account of tax exemptions. 37 It should be interpreted as targeted incentives for the promotion of certain sectors that may not. . Tax expenditures have been brought down significantly as a result of simplification of the tax system and improvements in tax administration in recent years (Figure 2.

etc. improving the quality of expenditure becomes central to achieving sustained fiscal consolidation. As a proportion of GDP. health. . Trends in Expenditure 2.7). social services like education. and disinvestment receipts.753 crore of recovery of loans and R 69. The share of recovery of loans has been declining in nondebt capital receipts mainly because of the 12th Finance Commission’s recommendation against loan intermediation from the centre to states.10 Rationalization and reprioritization of public expenditure is integral to fiscal reforms.2 per cent over RE 201415. The Budget for 2015-16 placed non-debt capital receipts at R80.500 crore of other receipts (mainly disinvestment). Quality of Expenditure 2. Within this.22 lakh crore (Table 2.3: Trend in Non-tax Revenue ( Rcrore) 2013-14 2014-15 2015-16 P BE Interest receipts 21868 24265 Dividend and profit 90435 89912 100651 External grants Others Receipts of UTs Total 23599 3618 1268 1774 81475 80209 94413 1474 1305 1296 198870 196959 221733 Source: Budget documents and CGA. Non-Debt Capital Receipts 2. In particular. Therefore.1 per cent higher than the provisional estimates (P) of 2014-15. roads and others without compromising defence capital expenditure.6). in the face of low tax to GDP ratio.2 percentage points of GDP (Figure 2. comprising R10. which was 1. external grants and receipts from services provided by the central government which include fiscal services like currency and mint.5 per cent and growth in revenue expenditure was 3. The Budget for 2015-16 envisaged generation of R 2.6 per cent of GDP and constituted 18 per cent of non-debt receipts. general services like the Union Public Service Commission police.253 crore. it is a challenge to attain fiscal consolidation while ensuring that sufficient funds are allocated for public investment.11 The Budget for 2015-16 estimated a total expenditure at R17. Budget 2015-16 ensured a higher share for capital expenditure from the total pool of expenditure (Figure 2.8 Non-tax revenue mainly consists of interest and dividend receipts.3) from non-tax revenue.77 lakh crore.. Table 2. which was 5. etc. Budget 2015-16 sought to achieve the proposed expansion of capital expenditure on railways. and allowing the states to directly borrow from the market.9 Non-debt capital receipts mainly consist of recovery of loans and advances. and economic services like irrigation and transportation. Underlining the need for greater public investment to aid growth revival. total capital expenditure and non-defence capital expenditure were both raised by more than 0. the expected growth in capital expenditure was 25.7 per cent higher than the 2014-15 RE and 8.38 Economic Survey 2015-16 Non-Tax Revenue 2.

the centrally sponsored schemes were restructured and reclassified into 66 programmes for greater synergy and effective implementation.Public Finance Plan Expenditure 2. The FFC had recommended allocation of greater resources to states through the automatic route by increasing the states’ share in the divisible pool of taxes from 32 per cent to 42 per cent.12 Two major developments that took place in two consecutive years transformed the whole plan expenditure regime.8). and counterbalancing this increase in devolution by curtailing the resources transferred under central plan 39 assistance to the states and by changing the expenditure-sharing pattern. 2. As a result.8) and also led to a decline in the share of plan expenditure in 2015-16 (BE) vis-à-vis the average of shares during 2010-11 to 201415 (Figure 2. central assistance to the plans of states and union territories (UT) recorded a significant increase in 2014-15(P) (Figure 2. there was a readjustment in the manner of allocation of plan funds to the states in the Budget for 2015-16 following the acceptance of major recommendations of FFC.9). . This provides greater autonomy. First. there has been an increase in overall resource transfer to states as discussed later in the chapter. However.13 Second. in the Budget for 2014-15. authority and responsibility to the states in implementation of schemes. CSS funds are released as central assistance to state plans and also routed through the states’ budgets. These developments translated into a decline in central assistance to the states (Figure 2.

2.05 lakh crore for central assistance to states and UTs) as against v4.60 lakh crore for central plan and v2. revenue expenditure accounted for around 92 per cent.12 lakh crore in BE 2015-16. energy. as against v4. pension payment to superannuated/retiring workforce from government services.45 lakh crore. which is 3 percentage points higher than the average of the last five years ending 201415.5 per cent as against the last five years’ (ending 2014-15) average of approximately 38. interest liability on debt incurred in the past. The share of committed expenditure in total non-plan expenditure (NPE in Figure 2.14 Given the change in the pattern of plan expenditure. For example. the decline in the subsidy bill increased the relative share of committed expenditure in non-plan expenditure.4). Furthermore. Second. and second. BE 2015-16 estimated committed expenditure at v5. The diverging trends in committed expenditure seen under two different indicators (Figure 2.11).11) has been constantly increasing.16 One of the major constraints in the rationalization of non-plan expenditure is committed expenditure. from 3. the share of committed expenditure (interest payment and pension) was roughly 41.15 Non-plan expenditure constituted 73. Out of the total non-plan expenditure of v13. social services and industry and minerals together constituted roughly 84 per cent of the BE of 2015-16 (Figure 2.87 lakh crore in 2014-15(P) (Table 2.90 per cent in 2014-15 (Figure 2.65 lakh crore in 201516 (v2. the remaining 8 per cent was mainly defence capital expenditure.54 lakh crore in 2014-15 (P).10).11). Non-plan Expenditure 2.6 per cent (Figure 2. Note: IP=Interest payment SU=Subsidies DF=Defence PO=Police PN= Pension OT=Others GR=Grants to states and UTs AVG= Average of last five year ending to 2014-15.8 per cent of the total expenditure in BE 201516. the broad sector-wise allocations of central plan outlay (gross budgetary support to central plan plus internal and extra-budgetary resources of the central public sector enterprises) indicate that transport. but it started declining post 2013-14 as a per cent of the GDP and BE 2015-16 estimated a decline to 3. the budget did well to allocate a plan outlay of v4.40 Economic Survey 2015-16 2. Committed expenditure occurs on two counts: first.12a) are also the result of rationalization in other categories of non-plan expenditure.86 per cent of the GDP. .

under-recoveries of oil marketing companies and subsidies provided by government: The prices of petroleum products were determined by the government under what is known as the administrative pricing mechanism (APM).67. but has resulted in a fiscal drag.5: Total Subsidies (Rcrore) 2013-14 2014-15 P 2015-16 BE Food Fertilizer Petroleum Others 92000 67339 85378 9915 122676 70967 60270 - 124419 72969 30000 16423 Source: Budget documents & CGA.3). Petroleum subsidy is a major subsidy with somewhat limited welfare dimension. The deregulation of petrol and diesel prices and direct benefit transfer of subsidy for domestic LPG.. Petroleum pricing policies.7 per cent of GDP. The 41 total subsidy bill as a proportion of GDP has been declining since 2012-13 and is expected to be below 2 per cent of GDP as per BE 2015-16 (Figure 2.44 lakh crore.000 crore in 2002-03 to nearly R2. Box 2. As a ratio of GDP. Table 2.4: Committed Expenditure (R crore) 2013-14 Interest payments Pensions Total 374254 74896 449150 2014-15 P 404019 82954 486973 2015-16 BE 456145 88521 544666 Source: Budget documents & CGA. with effect from July 1975 and this continued till 2002.3: Trends in Subsidies on Petroleum Products Provision of subsidies to the poor has large welfare dimensions. along with ‘others’ receiving these subsidies is depicted in Figure 1.000 crore in 2014-15 (RE). This box traces the problem in detail.769 crore in 2014-15 (P) (Table 2. 2.. helped in containing the petroleum subsidy bill at R30.12b). These seemingly conflicting objectives can be reconciled by making subsidies transparent. but fiscal prudence considerations required to containing subsidies to sustainable levels. The share of major sectors.58 per cent. An oil pool account was maintained to ensure stable domestic prices of petroleum products (to Contd.17 The subsidy bill for BE 2015-16 was placed at R2. . subsidies from the union budget peaked in 201213 to reach 2. along with a decline in global crude oil prices. efficient and targeted through initiatives like direct benefits transfer wherever feasible.5). Under the APM.000 crore in BE 2015-16 as against R57.Public Finance Table 2. fertilizer and petroleum. The explicit subsidies paid from the union budget increased over six-fold from around R 43.. which was 1. The rationalization and reprioritization of subsidies through better targeting would play a vital role in fiscal consolidation and in targeting expenditure more towards inclusive development (Box 2. namely food. the oil refining and marketing companies were compensated to meet operating costs and certain return on net worth.

000 crore in 2013-14.000 crore in 2012-13. However. Since the dismantling of the APM.42 Economic Survey 2015-16 prevent the fluctuating international prices from affecting domestic oil prices). As a result of these developments. Clearly. it was being increasingly realized that the APM was coming in the way of expansion programmes of the refinery and marketing companies and that private companies would find it difficult to invest in the sector. The under-recoveries of the OMCs started declining as a result of these measures and more so on account of a significant reduction in international prices of crude oil. budgetary subsidies to the petroleum sector increased from nearly R3000 crore in 2004-5 to R15000 crore in 2009-10 and further to R97.e. Following the recommendations of the Committee on Taxation of Petroleum Products. the system in place could not be sustained for long.000 crore in AprilDecember 2015. As international oil prices remained high. . to compensate for it. the government decided to dismantle the APM in a phased manner. petroleum pricing and subsidy regimes have followed a rather chequered path. particularly since 2004-5. subsidies were to be provided only for kerosene oil and domestic cooking gas for a limited time. Prices of petroleum products were also controlled through downward revision of taxes and duties. accounting for 38 per cent of total subsidies. which impacted indirect tax collections directly. ending under-recoveries in diesel which formed the bulk of the underrecoveries. Similarly. i. and with less than full pricing and burden-sharing arrangements by upstream companies like the ONGC. OMCs were permitted to raise the prices of diesel oil in small doses (typically 40-50 paisa per litre per month) from January 2013. These under-recoveries were financed through a mix of (i) issuing of ‘oil-bonds’ (below-the-line budget entity). In the post APM phase. the government deregulated the prices of petrol with effect from June 2010. Products like LPG for cooking and kerosene oil for domestic users were provided at subsidized rates and. leading to significant escalation in under-recoveries of the oil marketing companies. They fell to close to R85. profits and dividends. However. the government was in effect controlling the revision in prices of almost all petroleum products. The government announced the decision to decontrol the prices of diesel in October 2014. They were also allowed to sell diesel to bulk consumers at non-subsidized rates. the upstream oil companies continued to share the burden by providing crude oil to OMCs at discounted prices. also declined. Caps were imposed on the number of LPG cylinders that could be sold to domestic consumers at subsidized rates. direct tax revenue and non-tax revenues. products like motor spirit and aviation turbine fuel were charged at higher rates. the government decided to discontinue issuance of oil bonds with effect from 2009-10 and provide the subsidy directly from budgetary resources. (ii) requiring the upstream companies like the Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) to charge discounted prices on crude oil sold to the oil marketing companies (OMCs) and (iii) direct subsidy from the budget. The continuing reduction in international prices of crude oil since the second half of 2014 has also had significant impact on the level of subsidies and overall public finance. following the recommendations of the Strategic Planning Group on Restructuring of Oil Industry (also known as the ‘R’ group). keeping in view the fact that crude oil prices had more than doubled between 2004-5 and 2008-9. subsidies on petroleum products declined to around R60.000 crore in 2014-15 and around R28. Higher levels of international oil prices were not commensurately passed on to the consumers. However. Following the recommendations of the Expert Group on A Viable and Sustainable System of Pricing of Petroleum Products. following the sustained increase in international prices of crude oil. Hence.

2.56 lakh crore (3. Domestic sources constitute roughly 98 per cent of the deficit financing. 2.Public Finance Trends in Deficit and Financing the Deficit 43 of Provisional Outcome in 2015-16 (up to December) vis-à-vis BE 2015-16 2. The other notable highlights of the fiscal outcome in the current year till December 2015 included increased tax devolution to the states in line with the recommendations of the FFC. and approximately 84 per cent of domestic financing is from market borrowings (Figure 2.21 The acceptance of the recommendations of the FFC for increased tax devolution has marked a watershed in India’s cooperative federalism.3 per cent.9 per cent of GDP) in 2014-15 (RE) (Figure 2.1 per cent of GDP) in 2014-15 (RE).6 per cent in the current year so far.13 lakh crore (4. is lower than in the corresponding period of the last year (Table 2. but slightly higher than the average of the last five years. This benign fiscal outcome so far in the year was due to improved tax buoyancy and prudent expenditure management with assistance from the decline in oil prices. achieving the highest increase in capital expenditure in the last six years and decline in major subsidies.6). as a percentage of BE. In keeping with the changed rules for devolution.8 per cent of GDP) in 2015-16 (BE) as against R3.62 lakh crore (2. 2.94 lakh crore (2.18 Budget 2015-16 sought to contain the fiscal deficit at R5.9 per cent of GDP) as against R5. the total resources transferred to states/UTs (during April-December 2015) increased by about 15. Hence. Revenue deficit (RD) was estimated at R3.14). as compared to AprilDecember 2014 (Figure 2. the financing of fiscal deficit in India is mostly from domestic sources. the taxes assigned to states/ UTs were raised by 36. With the grants and loans to states/UTs declining by about 5.15). the growth so far in taxes net to the centre was less than the growth in GTR (Table 2. .20 The accounts for April-December 2015-16. which was 82. released by the Controller General of Accounts show that the fiscal deficit of the union government at end-December 2015.13).4 per cent.7 per cent.6).19 Unlike some other countries.

2 10. 2.8 -1.0 18.5 10.9 73.2 85.4 74.44 Economic Survey 2015-16 2.0 3.8 74. mainly on account of the 18.3 -27.8 33.6 81.3 per cent of BE.4 -13.7 .9 21.1 106.7 80.1 6.6 100.5 68.2 8.0 -11.0 10.3 58.9 70. indirect tax collections as a ratio of BE at end-December 2015 stood at 71.4 3.0 -64.4 69.0 -8. While growth in nontax revenue remained robust.0 5.8 -24.2 66.1 9.22 The robust growth in GTR in the first three quarters of the year (Table 2.4 27.2 9.1 14. Excise collections may have been bolstered by improving dynamics of economic activity and also measures like increasing the excise duty on petrol and diesel in the backdrop of falling international prices of crude oil.9 73.5 -8.3 2.6: Provisional Outcome for 2015-16 (Till December 2015) BE  (Rcrore) Absolute number ( Rcrore)  2015-16 2014-15 2015-16 1 Revenue receipts Gross tax revenue Tax (net to centre) Non-tax revenue 2 Capital receipts Recovery of loans Other receipts 3 Total receipts 4 Non-Plan expenditure a) Revenue account Interest payments Major subsidies Pensions b) Capital account 5 Plan expenditure a) Revenue account b) Capital account 6 Total expenditure a) Revenue expenditure b) Capital expenditure 7 Revenue deficit 8 Effective revenue deficit 9 Fiscal deficit 10 Primary deficit 1141575 693773 803808 1449490 795686 963229 919842 545714 622248 221733 148059 181561 635902 542615 510189 10753 8282 9138 69500 1952 12866 1777477 1236388 1313997 1312200 883757 968019 1206027 813270 895386 456145 275220 302298 227388 212418 208759 88521 68104 69467 106173 70487 72633 465277 352631 345978 330020 282278 230656 135257 70353 115322 1777477 1236388 1313997 1536047 1095548 1126042 241430 140840 187955 394472 401775 322234 283921 303912 229446 555649 532381 488185 99504 257161 185887 Source: CGA monthly account and Budget documents.9 85.9 72.9 68.9 6. Revenue expenditure in April-December 2015 was only modestly higher.1 67 61.6 -6.9 69.4 73 64.0 -1.5 per cent increase in capital expenditure was on the plan side.5 67. Consequently.9 62. though higher than in the previous year.9 81.3 63.1 -4.7 3.3 9.23 Most of the 33.8 78. stood only at 18.8 Growth over last year (per cent) 2014-15 2015-16 9.2 246. Direct taxes—both on personal income and corporate income--grew by more than 10 per cent during the period.8 69.2 57.1 6.9 6. disinvestment receipts (included in other capital receipts in Table 2.8 87.2 8.3 91.8 per cent at end-December 2014.5 83.1 68.3 62. April-December Per cent of respective BE 2014-15 2015-16 58. as compared to 54.2 144.5 -19.4 3.4 0.2 10.9 -18.7 89.5 per cent of the BE.9 186.4 7.7 2.8 12.0 22.3 77.3 559.4 66.3 per cent decline in plan revenue expenditure largely reflecting the change in pattern of devolution to the states/ UTs.3 73.8 11.3 2.5 73.7 78. Grants-in-aid to states under this head Table 2.9 80. with union excise duties growing by about 68 per cent.6) was aided by the 34.6) at end-December 2015.4 3.8 per cent growth in indirect taxes.3 55.5 84.5 26.0 15.

Total outstanding liabilities were estimated at R68. and net revenue as a proportion of capital-at-charge. Government Debt 2.7 per cent.6 per cent of GDP and comprising 39.05 lakh crore last year (April-December) to R1.2 per cent public debt (internal debt plus external debt) and 10. provident funds. network modernization.237 crore. accounting for 49. 2. 2. However. which stood at 91.35 lakh crore to R0. 2.84 lakh crore in BE 2015-16.94 lakh crore in BE 2015-16. as shown in Figure 2.16 B. improving the quality and pricing of services and improving energy efficiency in operations. The other major subsidies—food and fertilizer— increased by 10.26 The key focus areas for Indian Railways include fast tracking of capacity augmentation.25 The gross receipts of the Department of Posts in 2014-15 were placed at R11. improvement in asset utilization and productivity. modernization of rolling stock and maintenance practices. passenger earnings (including coaching earnings) and gross traffic receipts of the Railways grew 45 by 12. Prolonged fiscal deficits lead to accumulation of debt beyond levels that are sustainable and can result in higher real and nominal interest rates.9 per cent and 12. slower growth in capital formation and potentially lower rates of output growth. During 2014-15.636 crore.50 lakh crore this year. which was 7. high speed rail. external debt is only a small fraction of the total liabilities of the centre and is a declining proportion of GDP (Table 2.) (Table 2. last mile rail linkages and port connectivity.3 per cent other liabilities (small savings.0 per cent in the previous year. non-plan grants to states increased from R0. The degree of external liability of the government.28 The total outstanding liabilities of the central government were R62.3 per cent respectively over 2013-14. Railways 2.78 lakh crore at end-March 2015. however. .3 per cent in 2014-15. Investments are being prioritized in important areas like dedicated freight corridors. In 2015-16. which resulted in a deficit of R6259 crore.557 crore and R17.24 The 1.Public Finance declined from R2.7 per cent decline in major subsidies was due to a near 44. Gross traffic receipts of the Railways were estimated to increase to R1.540 crore respectively. High and rising public debt levels may also impact public finances through debt servicing dynamics that worsen the government’s fiscal position. The operating ratio of the Railways. the freight earnings.4 per cent and 13. high-capacity rolling stock. The gross and net working expenses during the year were R18. The deficit is projected to be R7303 crore.57 lakh crore in 2014-15.7 per cent respectively during the period.74 lakh crore during the period.7).7 per cent decline in petroleum subsidy (AprilDecember) that occurred due to a steep decline in international crude oil prices. as against R1.29 Figure 2. etc. 14.185 crore and R19. with gross and net working expenses estimated at R20. are also likely to see improvements in 2015-16. may change purely on account of currency movements. relative to the size of the economy. even without new borrowing.7).27 The public debt management policy in India focuses on maintaining a longrun sustainable debt structure at lowest possible cost.895 crore respectively. By any measure. Performance of Departmental Enterprises of the Central Government Department of Posts 2. the gross receipts are expected to increase to R12.16A shows how robust GDP growth kept the increasing debt of the central government at sustainable levels. The figure also brings forth an issue of the temporal valuation of the external liabilities of the centre.

3 per cent of GDP in 2015-16 (BE) (Figure 2. # Internal debt includes net borrowing of R20.0 37.4 37.9 Source: Union budget documents and DMO.31 The general government (centre plus states) has been on the path of fiscal consolidation and fiscal discipline. mainly for two reasons.8 30.9 6. and.8 11.6 30.9 1.17 B). RBI and DMO.Other internal liabilities 2.5 7. Fiscal performance of the General Government 2. 2. the share of states in national taxes has been increasing (Figure 2.8 7.3 2014-15 RE 48.Total outstanding liabilities (1+2) (as per cent of GDP) 2011-12 2012-13 49. an analysis of the general government offers greater insights than a separate analysis of either the centre or the states. Source: Union budget documents.17A).9 per cent over the corresponding period of the previous year (Figure 2.8 51. The general government capital expenditure in first the eight months of 2015-16 increased by 26.8 12.7 51.30 In the new regime of fiscal federalism.External debt(outstanding)* 3.3 1. (RBI) and Debt Management Office (DMO).5 48. Notes:* External liabilities at historical exchange rate otherwise it is at current exchange rate. 2.0 8. the transfer of untied resources from the centre to the states has increased considerably (Figure 2. Reserve Bank of India Source: Union budget documents.19).2 37.6 30.1 37. second. with the acceptance of the FFC recommendations.46 Economic Survey 2015-16 Table 2. as reflected in the debt dynamics (Figure 2.5 49.7 9.6 2015-16 BE 47.8 49.0 2013-14 48.0 1.7 30.9 per cent of GDP in 2014-15 (RE) to 6. . The fiscal deficit of general government is further expected to decline from 6.32 Based on the first eight months’ data of the current year. it is observed that both the centre and the states have stuck to the plan of ensuring quality of expenditure and boosting public investment.7 37. First.Internal liabilities # a)Internal debt i)Market borrowings ii)Others b).6 50.18).1 11. Notes: * External debt figures represent borrowings by central government from external sources and are based upon historical rates of exchange.9 1.0 10.8 28.7: Total Outstanding Liabilities of the Central Government at end-March 1.3 1. since the implementation of the recommendations of the 12th Finance Commission.20).2 7.000 crore for 2015-16 (BE) under the Market Stabilization Scheme.

Public Finance Source: Budget documents of centre and CAG. G_FD=General Government Fiscal deficit. 47 Source: Budget documents of centre and CAG. Period under 12th FC is 2005-10. Notes: G_RD=General Government Revenue deficit. 13th FC is 2010-15 and for 14th FC is 2015-16. S_FD=State Governments Fiscal deficit. . TD= Tax devolution NPG= Non-plan grants PG=Plan grants National taxes is sum of gross tax revenue of the Centre and States' own tax revenue. S_RD=State Governments Revenue deficit.

Improving tax compliance through better tax administration. in contrast to the current year. tapping new sources of revenue. higher level of capital expenditure on the plan side. could help raise more revenue and keep the fiscal deficit at levels projected in the revised fiscal road map. With global slowdown likely to persist. the subsidy bill on petroleum products may not reap the advantages of steeply declining oil prices. The implementation of the Pay Commission recommendations and the One Rank One Pension (OROP) scheme will put additional burden on expenditure.9 per cent of GDP seems achievable. and enhanced untied resources transferred to the states following the acceptance of the recommendations of the FFC are some of the salient developments of the fiscal performance in 2015-16 so far. . the fiscal deficit target of 3. lower level of subsidies on petroleum products helped in a large measure by declining international prices of crude oil. etc. Given the 2. led by buoyant indirect tax collections. the chances of India’s growth rate in 2016-17 increasing significantly beyond 2015-16 levels are not very high. Similarly.48 Economic Survey 2015-16 pattern of revenue and expenditure in the first nine months of the current financial year. Source: CAG Outlook 2.34 The coming year is expected to be a challenging one from the fiscal point of view. in spite of the challenges posed by a lower than projected nominal GDP growth.33 Significant increase in revenue receipts.